Mortgage Refinancing-Tips on Consider Before Going for One

March 24, 2009 by  
Filed under Home Loan Refinance

Refinancing loans are a great way to minimize expenses by transferring to loans of better terms and conditions compared to current loans. A very common loan is a mortgage since a house can definitely be one’s best asset which can give access to bigger loans. Refinancing mortgage has also been a common practice since mortgages usually involve longer terms and stricter conditions than other types of loans.

Refinancing mortgage allows you to transfer the rights of a mortgage to a lender which offers fewer burdens when it comes to the financial side such as lower interest rates and/or favorable terms. The best way to consider mortgage refinancing is when interest rate drops from the time you first take out your loan and/or your credit rating improves. These situations can definitely guarantee you better loan conditions and lesser expenses when paying it off.

Refinancing mortgages, though, need to be thought through carefully. Basically, it’s still a loan. You still need to pay for it and thus makes a dent in your budget. Careful planning and thorough examination of options must be made to get the best deals and to avoid going for mortgage refinancing that will only burden you further which technically defeats the purpose. Here are some mortgage refinancing tips that will provide insight on how to best go about mortgage refinancing:

1. To get the lowest possible rates in mortgage refinancing, you can apply for pre-approval from different lenders. This can enable you to compare among the offers. Just be sure that you apply to lenders who don’t pull your credit history. With regards to pulling your credit history, most lenders and mortgage refinancing companies will actually tell you if they’re going to do this. Having your credit checked can lower your chances of getting the best rates, so be wary of this action.

2. Another good and probably a basic way to gain access to lower interest rate in mortgage refinancing is to have better credit rating. A simple way to boost credit rating is to close your unused or inactive credit card accounts. You have to send a request to the credit card company to close your account so that it will be explicitly documented that the account is requested to be closed by you. Otherwise, it could be assumed that it was closed due to bad credit.

3. Before deciding to go for mortgage refinancing, it is imperative to be aware if your present mortgage has a clause for a pre-payment penalty. This means that if you pay-off your mortgage within the specified time of the penalty, around six months to three years, you have to pay a certain amount which is usually about six months worth of installments as a penalty. If your term has already gone over that bracket for penalty, then well and good because mortgage refinancing will cause no additional payments. But if you’re still within the time frame stipulated, then you have to do some serious calculations whether refinancing will be feasible.

4. As much as possible, go for the shortest term you can afford. Although going for longer term refinancing is lighter on the pocket, in the long run it is more costly. Having the shortest term possible can still be made within budget because basically it is by your budget you came up with it. It also frees you up on your loan the soonest time possible. This does not only release you from the loan but also your credit rating can improve, giving you access to better loans if ever you need it.

These are some of the considerations you should make before getting your mortgage refinanced. Going for one is a decision you need to think about real hard because it is still your finances on the line here.